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Articles Real Estate 25th Mar 2020

FAQs for Landlords and Tenants of Commercial Properties

Landlords of Commercial Properties – FAQs

It is an uncertain time for landlords and tenants alike at present.  Below, we have sought to address some questions we are being regularly asked by landlords of commercial properties.  If you have any further questions arising, please do contact our helpline.

 

What do I do if my tenant of commercial premises does not pay the rent due under the lease?

If your tenant fails to pay the rent due under its lease, the below is a summary of the options that are likely to be available to you:

  • Forfeiture
    The Government has passed legislation preventing landlords from exercising rights to forfeit leases of commercial premises where a tenant fails to pay the rent before 30 June 2020.  Please see our separate note on this issue.
  • Commercial Rent Arrears Recovery (CRAR)
    This involves sending a bailiff round to seize goods on the tenant’s property to pay the unpaid rent.  There is a notice that needs to be served beforehand.  Bailiffs are generally instructed directly to exercise CRAR. There may be practical issues in bailiffs attending or entering premises given the Government’s measures requiring people to stay at home except for very limited purposes.
  • Statutory Demand
    Service of a statutory demand gives the tenant 21 days to pay the outstanding sum.  If the tenant fails to do so, you can present a bankruptcy or winding up petition to make the individual or company insolvent.
  • Letter before Action
    A threat to issue proceedings (including costs) may be enough to get the tenant to pay.
  • Rent Deposit
    If cashflow is the biggest issue then taking the money from the rent deposit and asking the tenant to top it up may be the best immediate option.
  • Guarantor
    Threatening to sue/serve a statutory demand on a guarantor may encourage the tenant or the guarantor to pay.
  • Interest
    Reminding the tenant that you can charge interest on any late payment may encourage payment of the rent now to avoid interest accruing.

If you choose to exercise any of these remedies, please be aware that due consideration needs to be given to the occupational documents as each lease differs and there are certain procedures to follow.  Please do contact the Property Litigation team if you need any specific advice on this.

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Can I come to an arrangement with my landlord or tenant to change the amount of rent or pause the payments?

The simple answer to this is “yes”, but the arrangement needs to be clearly documented.  As most arrangements will be in place for a relatively short period of time, it is unlikely you would want to vary the lease.  As such, a side letter clearly documenting the arrangement should be put in place.  The Property Litigation team has put a number of these in place for clients recently and are available to assist.

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Does the COVID-19 outbreak create an event which frustrates the lease such that the tenant could walk away?

This is highly unlikely.  Frustration has a very high threshold to be met, which would involve the tenant demonstrating there has been some form of frustration of common purpose that renders performance of the lease impossible.

If the lease has a force majeure clause, a tenant could seek to rely on it.  It is very rare for a lease to include such a clause and, even if it did, it is uncertain whether it would apply given that the event is unlikely to be permanent.

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Will a tenant be in breach of a keep open clause if it shuts the premises?

Strictly speaking, closing the premises will be a breach of a keep open clause.  However, the courts will not enforce these clauses by granting orders for specific performance.  We also consider it unlikely they will order a tenant to pay a landlord damages where a tenant is complying with Government guidance. In addition, if the rent continues to be payable under the lease, there is a question as to what the landlord’s loss is.

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Could a rent suspension clause in the lease apply?

A rent suspension clause is unlikely to apply as it usually only kicks in where the premises have been damaged such that there are unfit for occupation.  Clearly, each clause should be reviewed however to see whether the COVID-19 outbreak could mean that the rent suspension should be applied.  You should also check your relevant insurance to see if you may be able to claim against loss of rent insurance in the circumstances.


Tenants of Commercial Properties – FAQs

It is an uncertain time for landlords and tenants alike at present.  Below, we have sought to address some questions we are being regularly asked by tenants of commercial properties.  If you have any further questions arising, please do contact our helpline.

What action could my landlord take if we do not pay the rent due under the lease?

If you do not pay the rent due under your lease, the below is a summary of the actions that your landlord may be able to take:

  • Forfeiture
    The Government has passed legislation preventing landlords from exercising rights to forfeit leases of commercial premises where a tenant fails to pay the rent before 30 June 2020. Please see our separate note on this issue.
  • Commercial Rent Arrears Recovery (CRAR)
    This involves sending a bailiff round to seize goods on the demised premises to pay the unpaid rent.  There is a notice that needs to be served beforehand. There may be practical issues in bailiffs attending or entering premises given the Government’s measures requiring people to stay at home except for very limited purposes.
  • Statutory Demand
    The landlord could serve a statutory demand giving you 21 days to pay the outstanding sum. If you fail to do so, the landlord could present a bankruptcy or winding up petition to make you insolvent.
  • Letter before Action
    The landlord could issue a letter before action and follow this up by the issue of court proceedings for the debt if not paid.
  • Rent Deposit
    If the landlord holds a rent deposit, it could take the rent from the deposit account and ask you to top it up.
  • Guarantor
    The landlord could serve a guarantor with a statutory demand or letter before action. If the guarantor pays, it is likely it would be able to seek recovery of the money from you via an indemnity.
  • Interest
    Interest is likely to be payable on any late payment. The landlord could insist on you paying this.

Please be aware that if your landlord does seek to exercise any of these remedies, due consideration needs to be given to the occupational documents as each lease differs and there are certain procedures to follow.  Please do contact the Property Litigation team if you need any specific advice on this.

Back to the top

Can I come to an arrangement with my landlord to change the amount of rent or pause the payments?

The simple answer to this is “yes”, but the arrangement needs to be clearly documented.  As most arrangements will be in place for a relatively short period of time, it is unlikely you would want to vary the lease.  As such, a side letter clearly documenting the arrangement should be put in place.  The Property Litigation team has put a number of these in place for clients recently and are available to assist.

Back to the top

Does the COVID-19 outbreak create an event which frustrates the lease such that we could walk away?

This is highly unlikely.  Frustration has a very high threshold to be met, which would involve you demonstrating there has been some form of frustration of common purpose that renders performance of the lease impossible.

If the lease has a force majeure clause, you could seek to rely on it.  It is very rare for a lease to include such a clause and, even if it did, it is uncertain whether it would apply given that the event is unlikely to be permanent.

Back to the top

Will a tenant be in breach of a keep open clause if it shuts the premises?

Strictly speaking, closing the premises will be a breach of a keep open clause.  However, the courts will not enforce these clauses by granting orders for specific performance.  We also consider it unlikely they will order a tenant to pay a landlord damages where a tenant is complying with Government guidance.  In addition, if the rent continues to be payable under the lease, there is a question as to what the landlord’s loss is.

Back to the top

Could a rent suspension clause in the lease apply?

A rent suspension clause is unlikely to apply as it usually only kicks in where the premises have been damaged such that there are unfit for occupation.  Clearly, each clause should be reviewed however to see whether the COVID-19 outbreak could mean that the rent suspension should be applied.  You should also check your relevant insurance to see if you may be able to claim for the rent in the circumstances.

If you would like to talk through the consequences for your business, call our Coronavirus Helpline on 0845 404 4111 for a free consultation (on appropriate commercial enquiries only) or e-mail us and one of our Helpline team will get in touch.


The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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